Insights
November 17, 2022

The Cost Benefits of Paid Parental Leave

Fun fact: paid parental leave (PPL) would be a more worthwhile financial investment for many companies than a 401(k) match.
Written by
Parento
Category
Insights

Fun fact: paid parental leave (PPL) would be a more worthwhile financial investment for many, if not most, companies than a 401(k) match.

How does this work? For one, the financial value of a 401(k) match (or any other financial wellness program, really) pales in comparison to the impact on long-term earnings working moms (and families) face. Up to 40% of working mothers quit after birth, and most leave the workforce for at least 6 months. The lost income for 6+ months is equivalent to a decade of company-matched 401(k) contributions.

For another, parenthood drives largely avoidable turnover. Without 12+ weeks of PPL, 40-50% of birthing mothers will quit the year they have a child, often before birth. This turnover can be reduced by up to 70% with an effective PPL policy of 10+ weeks and a return-to-work/support program to ensure a safe return to full-time.

A robust PPL policy may sound like a lot of time and money to set up and manage. However, studies consistently show that PPL increases employee retention, especially in a volatile and competitive job market — and saves companies tens of thousands of dollars annually in replacement costs. Independent studies have found PPL has a higher ROI than other programs companies already offer to their employees.

While only 3-6% of employees may have a kid each year, 30-50% of employees consider or plan to have a kid within the next few years. Prospective employees who plan to have children are more likely to gravitate toward companies perceived as more family-friendly, offering adequate PPL and tools like one-on-one support and guidance.

Once considered an ancillary policy or incentive, paid parental leave has catapulted into the mainstream as a necessary workplace tool—and provides cost savings over both the short and long terms for employers.

To start, paid parental leave reduces employers’ medical expenses. 

Birthing parents with access to PPL prior to birth experience an 80% reduction in c-sections and birth complications and a 51% decreased risk of rehospitalization, due to reduced stress. They are also more likely to receive preventative care and get properly evaluated for postpartum depression and other disorders, which leads to improved post-birth outcomes and shorter recovery times. This raises the prospect of birthing moms feeling mentally and emotionally supported to return to work full-time — and reduces companies’ medical expenses on the most expensive medical event for younger employees.

Paid parental leave increases baseline retention and retention when employees inevitably have kids.

Many employers only offer birth mothers paid maternity leave as the “primary caretaker,” while fathers and other non-birthing parents, as the “secondary caretaker,” get little to no paid parental leave. This often forces many women to temporarily, or permanently, leave the workforce, as paying for childcare is unaffordable.

However, moms with access to paid leave are also more likely to return to the workforce, often to their original jobs rather than find a new one or leave the labor force entirely. PPL is also linked to increased employee loyalty and a 15% increase in average tenure, reducing baseline turnover costs. States with PPL policies also saw a 20% reduction in female employees leaving jobs in the first year post-birth and up to 50% reduction after 5 years.

Comprehensive PPL is also a key incentive for current job-seekers. 86% of U.S. Millennials are less likely to quit if it’s offered, and 75% of employees have said their companies’ PPL policy made them more loyal to the company.

With higher retention comes reduced costs.

Current turnover costs average 33% of an employee’s annual salary and increase in highly competitive fields. The costs to recruit, interview, and onboard, combined with downtime in productivity and output, far outweigh the costs of a comprehensive PPL program for all employees. And depending on which policy your company adopts, a PPL policy typically costs less than 1% of total annual wages.

California’s program is a prime example of PPL’s effectiveness. 87% of California businesses saw no increased costs after the paid leave program went into effect, and 9% even reported saving money thanks to lower employee turnover rates and/or lower spending on employee benefits.

In short, paid parental leave makes sound financial sense.

Companies increase retention rates, boost employee morale, and save thousands on turnover costs, while parent employees get paid time off to heal, bond with their child, and plan for return to work.

401(k)s may be more universal, but a comprehensive, fully insured PPL policy that also provides unlimited support and coaching to ensure employees return to work costs considerably less while directly improving workforce outcomes and the employee experience.

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